Apple Watch Edition Hero

Source: Apple.

In case you haven't noticed, Apple's (NASDAQ:AAPL) been taking a relative beating over the past month.

First, the Mac maker's fiscal third-quarter earnings release failed to impress investors, who wanted to see even more in the way of iPhone unit sales and revenue guidance for the coming quarter. Then Canalys estimates suggested that Apple fell to the No. 3 position in the all-important Chinese smartphone market, with local players Xiaomi and Huawei leading the pack. The concerns about China were then exacerbated when the People's Bank of China said it would begin devaluing the yuan, making the already-tough FX environment even tougher.

At this point, Apple now sits 15% lower than its July peak, and chart readers are freaking out about the fact that shares have fallen below the 200-day moving average. What's that thing that Warren Buffet always says?

The yuan devaluation fears are overblown
Fellow Fool Adam Levine-Weinberg has already laid out a compelling case on why the yuan devaluation doesn't matter. While there is some legitimacy to the market's current currency concerns (try saying that three times fast), the reaction has been disproportionate to the underlying risk.

Think of it like this. Shares fell 5% when the devaluation news was announced, wiping away $35.5 billion from Apple's market cap. The overall FX hit that Apple took last quarter due to the strengthening U.S. dollar across all geographies for all currencies was "just" $3.2 billion. The yuan-related currency risk does carry more weight since China is Apple's second-largest market, but still, this punishment didn't fit the crime.

Share repurchases will continue to drive earnings growth
Tim Cook has made it abundantly clear that Apple's capital return program is here to stay. More to the point, Apple continues to allocate the majority of the program toward share repurchases. The most recent increase brought the total program to $200 billion, of which $140 billion is set aside for share repurchases ($90 billion has been completed to date). That's a powerful vote of confidence and an awful lot of money on the line if Apple is wrong.

The aggressive repurchase activity is helping drive earnings growth in a big way, since Apple is gobbling up its own stock so fast that total outstanding shares continues to fall. This is why diluted EPS growth continues to outpace revenue growth by a healthy clip. Last quarter, diluted EPS jumped 45% while revenue increased 33%.

Even when Apple "loses" when shares decline, long-term investors actually win. When the share price is weak, as it is right now, Apple is able to repurchase even more shares than if prices were higher, delivering even more earnings accretion to remaining shareholders.

That earnings growth is stupid cheap
Apple has long been cheap. This hasn't changed in years. Right now, shares are trading at around 13.3 times earnings. But Apple is now sitting on $171.6 billion in net cash on the books after factoring in debt. That turns out to a hair more than $30 per share in cash, or over 25% of Apple's current value.

If we back that out, Apple trades at just 9.8 times earnings ex-cash. Where else can you find a stock that's delivering EPS growth in excess of 40% each quarter that boasts an earnings multiple under 10? Do you remember when Morgan Stanley analyst Katy Huberty characterized Apple shares as a "free option" on future innovation (such as Apple Watch) since shares were so cheap that they effectively weren't pricing in future growth opportunities? This is what she was talking about.

Evan Niu, CFA owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.